June 16, 2020 / 11:54 AM / 21 days ago

Italy's market watchdog calls for perpetual govt bonds for retail investors

MILAN, June 16 (Reuters) - Italy must attract private savings towards perpetual government bonds to help support the country’s increasing financial needs amid the COVID-19 crisis, the head of national market regulator CONSOB said on Tuesday.

Italy, one of the world’s hardest-hit countries by the coronavirus and associated economic disruption, expects a drop in output of around 8% and this year and an increase in debt to 155.7% of gross domestic product.

Speaking at CONSOB’s annual meeting, its chief Paolo Savona urged the government to issue perpetual bonds to ordinary Italians so that they “can prevent costs and constraints from being imposed on the country if debt/GDP ratios are not achieved to the extent agreed at European level”.

Perpetual bonds, or perps, have no maturity date and pay interest forever. Financially troubled governments can thus raise money without having to pay it back.

Savona’s words follow similar calls from other senior figures for ordinary Italians to take on more public debt.

Two months ago, Intesa Sanpaolo CEO Carlo Messina urged the Treasury to issue “bonds with social purposes” aimed at ordinary Italians, offering “competitive yields, tax breaks, a legal shield against prosecution to repatriate money stashed abroad”.

In May, Italy raised a record 22.3 billion euros ($25.25 billion) from a BTP Italia inflation-linked bond targeted at retail investors, outperforming the last such issue in October and exceeding the already high expectations for the new note.

Last week, Italy’s Treasury unveiled plans for a new bond, called the “BTP Futura”, for retail investors only, with a maturity of 8-10 years, whose proceeds will be entirely used to fund measures to help the economy recover from the epidemic.

A new perpetual government bond could have a yield “equal to the maximum of the 2% inflation rate which ECB has committed itself not to exceed in medium term” and must be tax-free, Savona said. ($1 = 0.8832 euros) (Reporting by Gianluca Semeraro, Elisa Anzolin, editing by Gavin Jones)

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